Politics of Poverty

Big Oil strikes it rich in tax overhaul and looks to repeal landmark transparency law

Activists outside the offices of Chevron are calling for oil companies to accept strong rules to implement the transparency provisions in the Dodd-Frank Wall Street Reform Bill of 2010. Actors portrayed oil companies as monkeys in the "see no evil, speak no evil" proverb, as a way to expose efforts by the oil industry to encourage the Securities and Exchange Commission to enact weak rules that will allow them to continue to make secret payments to governments. (Photo: Scott Dalton / Oxfam America)

US oil companies scored big wins in the recent changes to the tax code, and now aim to dismantle Section 1504, the pioneering anticorruption provision that requires them to disclose their payments to governments globally.

It’s no secret that US multinational companies walk away as clear winners in the new sweeping changes to US tax law. Corporate tax rates are slashed from 35 percent to 21 percent. Foreign income of US-based companies is taxed at a reduced rate. And past profits hoarded offshore can be brought back to the US at a bargain tax rate of 15.5 percent or less. All of this as the new law deprives the Treasury of over a trillion dollars that could be used to combat poverty and rising inequality.

But the oil sector, already supported by lucrative subsidies, secured additional benefits. The industry now sets its sights on getting rid of Dodd-Frank Section 1504, a landmark anticorruption law meant to shine a light on billions in financial flows between oil companies and governments.

But with massive changes to the tax code on the horizon in late 2017, multinational oil companies saw another opportunity to maximize their gains, and got Congress to grant them additional tax breaks:

Exempting oil-related income from an existing tax on US-controlled foreign corporations: Since the 1960s, US tax law has taxed certain profits of foreign subsidiaries at the corporate income tax rate. The new law allows foreign refining, transportation, and distribution income from oil and gas products to escape this tax. The Joint Commission on Taxation estimates that this new provision will reduce US tax receipts by $4 billion over the next 10 years.

Exclusion of “foreign oil and gas extraction income” from the newly-defined Global Intangible Low-Taxed Income (“GILTI”): GILTI taxation is a new minimum tax on high foreign profits meant to discourage US multinationals from offshoring jobs and profits. GILTI is taxed at a minimum of 10.5 percent (with credits for 80 percent of foreign taxes paid). It is unclear how much of a windfall oil and gas companies might get from their production activities being excluded from this provision.

Congress and the SEC must not let Big Oil torpedo transparency

With these big policy wins, penny-pinching oil giants can laugh all the way to the bank – at the expense of the public treasury. And if that wasn’t enough, they now want to scrap a law that allows citizens around the world to know how much oil companies are actually contributing to government coffers. The oil sector has turned its attention back to fighting Section 1504 of the 2010 Dodd-Frank Act. Also known as the Cardin-Lugar provision, Section 1504 requires US-listed mining, oil, and natural gas companies to report their payments to the US and other governments around the world, reducing risks of opaque and corrupt transactions in sectors where risks are already elevated. Cardin-Lugar set a worldwide example for disclosures, and the EU and Canada enacted similar legislation following its passage in the US that has since led to payments to governments reports by major oil and mining companies including BP, Royal Dutch Shell, and Barrick Gold.

Since the law was passed, US oil companies and their allies have fought tooth and nail for secrecy. They attempted to water down and delay the strong 2012 implementing rule proposed by the Securities and Exchange Commission (SEC), including with an API lawsuit. Oxfam joined the SEC to protect the rule in court. And while API managed to convince a judge to mandate a rewrite of the rule for procedural reasons, the SEC produced a strong and fair final rule in June 2016. Unfortunately, API and its allies – including Secretary of State and former Exxon CEO Rex Tillerson who lobbied the SEC against a strong rule – ultimately won a Valentine’s Day victory last year when Congress nullified the rule, requiring the SEC to go back to the drawing board to propose a new rule by Feb. 14 of this year.

Now, Section 1504 itself is under attack. The House Financial Services Committee has already voted in favor of HR 4519, a bill to repeal the provision entirely. If the bill becomes law, the US will relinquish its leadership on good governance in extractive industries, and facilitate an environment where neither investors nor civil society can rest assured that US-listed companies’ activities do not rely on bribery and corrupt activities. As my colleague Isabel Munilla explains in The Hill this week, “Oil and mining corruption and revenue theft undermine democracy and are often a precursor to destabilizing conflicts that can shut down investment and disrupt economic growth for decades.”

After its recent success lobbying for tax breaks and deregulation, the oil industry seems committed to blocking the Cardin-Lugar provision in any way possible. But opacity in the extractive sectors permits corruption to flourish and impedes public accountability both in the US and abroad. Congress should maintain the current anti-corruption law and ensure payment disclosure, with a strong rule from the SEC.

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Author bio

Daniel Mulé

Daniel Mulé (@DanielGMule) is a senior policy advisor for tax and extractive industries. His research and advocacy centers around the fiscal contributions of the mining, oil, and gas sectors and the potential of these revenues to contribute effectively to poverty alleviation and sustainable development.

Washington, DC

Oxfam is a global organization working to end the injustice of poverty. We help people build better futures for themselves, hold the powerful accountable, and save lives in disasters. Our mission is to tackle the root causes of poverty and create lasting solutions.

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